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What lies behind returns to schooling: the role of labor market sorting and worker heterogeneity

Author

Listed:
  • Pedro Portugal
  • Hugo Reis
  • Paulo Guimarães
  • Ana Rute Cardoso

Abstract

Do more educated workers earn higher wages partly because they have access to high-paying firms and occupations? We rely on linked employer-employee data on Portugal to combine the estimation of AKM models with the decomposition of the returns to schooling. We exploit exogenous variation in education driven by changes in compulsory education. We show that education provides access to better-paying workplaces and occupations: 30% of the overall return to education operates through the workplace channel and 12% through the occupationchannel. The remainder is associated exclusively with the individual. Match quality plays a modest role in the returns to education.

Suggested Citation

  • Pedro Portugal & Hugo Reis & Paulo Guimarães & Ana Rute Cardoso, 2023. "What lies behind returns to schooling: the role of labor market sorting and worker heterogeneity," Working Papers w202322, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202322
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • I26 - Health, Education, and Welfare - - Education - - - Returns to Education
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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